Question of the Day

Whose side of the story do you believe?

The federal regulator of bailed-out mortgage giants Fannie Mae and Freddie Mac defended plans Friday to give $210 million in retention bonuses to employees he said had lost years of savings when the companies’ stock collapsed in 2008.

Bonuses as high as $1.5 million, which will go to 7,600 employees at the two federally-created home mortgage companies that lost more than $100 billion last year, were needed to retain their best talent from leaving in the midst of the economic crisis spawned when the housing bubble burst, James B. Lockhart III of the Federal Housing Finance Agency said in a letter to Sen. Charles Grassley of Iowa, the Senate Finance Committee’s ranking Republican.

“It is hard to see any common sense in management decisions that award hundreds of millions in bonuses when their organizations lost more than $100 billion in a year. And it is an insult that the bonuses were made with an infusion of cash from taxpayers,” Mr. Grassley said in a statement Friday.

“The elite in Washington and New York need to realize that bonuses for poor performance and at taxpayer expense do a lot of damage to public confidence and support for the economic recovery effort,” Mr. Grassley said.

In his defense of the bonuses, Mr. Lockhart said “the collapse in value of the enterprises’ stock had destroyed years of savings for many, and future vesting of previous stock grants no longer provided any retention incentives. For senior executives, salary provided only a tenth to a third of total expected income.”

He further argued that the government quickly decided when it was preparing to take over the two mortgage Goliaths last August that “retention of human capital [was] one of our most important challenges.”

“With $1.7 trillion in assets and more than $5 trillion in outstanding debt and mortgage guarantees,” he said, that “requires skilled and experienced staff in a wide range of corporate activities.”